Financial Statements
Financial Statements Index Page Independent Auditor's Report 1 Statement of Financial Position 2 Statement of Current Operations 3 Statement of Capital Operations 4 Statement of Changes in Net Assets 5 Statement of Accumulated Remeasurement Gains 6 Statement of Cash Flows 7 Notes to the Financial Statements 8-16
1 INDEPENDENT AUDITOR'S REPORT The Chair and Board of Directors,, RENFREW, Ontario. We have audited the accompanying financial statements of the, which comprise the statement of financial position as at 31 March 2018, and the statements of current operations, capital operations, changes in net assets, accumulated remeasurement gains and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian Generally Accepted Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the as at 31 March 2018, and the results of its operations, changes in net assets, remeasurement gains and cash flows for the year then ended in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations. RENFREW, Ontario. Chartered Professional Accountants, 15 June 2018. Licensed Public Accountants. 620 Barnet Blvd. 14 Madawaska Street P.O. Box 94 Renfrew ON. K7V 0A8 Arnprior ON. K7S 3H2 T: 613.432.3664 F: 613.432.8424 T: 613.623.7926 F: 613.623.7927 Email: info@mackillicans.com Website: www.mackillicans.com
3 Statement of Current Operations (with 2017 figures for comparison) 2018 2017 Revenue: Patient care services (Note 2 (a)) $ 40,443,349 $ 38,536,650 Cash recoveries and sundry 2,793,111 2,429,714 Investment income 47,533 19,955 $ 43,283,993 $ 40,986,319 Expenses: Salaries, wages and benefits $ 29,899,510 $ 28,950,963 Medical and surgical supplies 2,079,266 2,086,035 Drugs and medical gases 2,045,630 1,776,026 Other supplies and expenses 7,675,333 5,917,202 $ 41,699,739 $ 38,730,226 Excess of revenue over expenses from operations $ 1,584,254 $ 2,256,093 Amortization of deferred contributions related to equipment 639,418 417,786 Amortization of equipment (1,864,934) (2,154,680) Excess of revenue over expenses for the year $ 358,738 $ 519,199 (See accompanying notes)
4 Statement of Capital Operations (with 2017 figures for comparison) 2018 2017 Revenue: Investment income $ 144,094 $ 191,359 Rental income 12,954 11,968 $ 157,048 $ 203,327 Expenses: Other supplies and expenses $ 27,435 $ 28,151 Excess of revenue over expenses before amortization $ 129,613 $ 175,176 Amortization of deferred contributions related to buildings 774,755 531,454 Amortization of buildings (984,479) (970,056) Deficiency of revenue over expenses for the year $ (80,111) $ (263,426) (See accompanying notes)
5 Statement of Changes in Net Assets (with 2017 figures for comparison) Investment in Capital Assets Unrestricted 2018 2017 Net assets (deficiencies) at the beginning of the year $ 24,635,954 $ (533,766) $ 24,102,188 $ 23,846,415 Excess (deficiency) of revenue over expenses for the year (80,111) 358,738 278,627 255,773 Transfer between funds (Note 13 (b)) (1,342,439) 1,342,439 Net assets (deficiencies) at the end of the year $ 23,213,404 $ 1,167,411 $ 24,380,815 $ 24,102,188 (See accompanying notes)
6 Statement of Accumulated Remeasurement Gains (with 2017 figures for comparison) 2018 2017 Accumulated remeasurement gains at beginning of year $ 400,911 $ 251,497 Net unrealized (realized) gains attributable to investments (61,064) 149,414 Accumulated remeasurement gains at end of year $ 339,847 $ 400,911 (See accompanying notes)
7 Statement of Cash Flows (with 2017 figures for comparison) 2018 2017 Cash flows from operating activities: Excess of revenue over expenses for the year $ 278,627 $ 255,773 Add (deduct) items which do not involve cash: - amortization of buildings and equipment 2,849,413 3,124,736 - amortization of deferred capital grants (1,414,173) (949,240) - increase (decrease) in employee future benefits (27,300) (15,500) - unrealized (realized) gains (61,064) 149,414 $ 1,625,503 $ 2,565,183 Net change in non cash working capital balances related to operations: Decrease (increase) in accounts receivable $ (2,733,092) $ (143,355) Decrease (increase) in inventory 24,879 (13,470) Decrease (increase) in prepaid expenses (49,068) 41,859 Increase (decrease) in accounts payable and accrued liabilities 1,696,552 621,902 Increase (decrease) in deferred provincial grants (280,000) 259,146 Increase (decrease) in deferred revenue (794,948) 165,119 $ (2,135,677) $ 931,201 Cash flows from (used for) operating activities $ (510,174) $ 3,496,384 Cash flows from financing activities: Increase in deferred grants for capital assets $ 6,240,726 $ 2,208,137 Cash flows from investing activities: Additions to construction in progress $ (2,537,720) $ (762,056) Additions to - land improvements (230,822) - buildings (282,321) - equipment (3,088,888) (1,968,776) Decrease (increase) in loans receivable (466,667) 83,333 Cash flows used for investing activities $ (6,606,418) $ (2,647,499) Net increase (decrease) in cash and investments during the year $ (875,866) $ 3,057,022 Cash and investments at the beginning of the year 11,953,086 8,896,064 Cash and investments at the end of the year $ 11,077,220 $ 11,953,086 (See accompanying notes)
Notes to the Financial Statements 8 1. GENERAL INFORMATION The is incorporated without share capital under the laws of the Province of Ontario. The Hospital is a registered charity under the Income Tax Act and accordingly is exempt from income taxes. These financial statements reflect the assets, liabilities and operations of the. They do not include the assets, liabilities or operations of its related entities which, although associated with the Hospital, are separately managed and report to a separate Board of Directors. The Hospital is principally involved in providing health care services as a community hospital to the residents of the Town of Renfrew and surrounding area. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared by management in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations, including the 4200 series of the standards, as issued by the Public Sector Accounting Board. a) Revenue recognition: The Hospital follows the deferral method of accounting for contributions which include donations and government grants. Under the Health Insurance Act and regulations thereto, the Hospital is funded primarily by the Local Health Integration Networks (LHIN) in accordance with budget arrangements established by the Ministry of Health. Operating grants are recorded as revenue in the period to which they relate. Grants approved but not received at the end of the accounting period are accrued. Where a portion of a grant relates to a future period, it is deferred and recognized in that subsequent period. These financial statements reflect agreed funding arrangements approved by the Ministry with respect to the year ended 31 March 2018. Capital grants for acquisition of capital assets are recorded as deferred credits and amortized to income in future years at the same rate as the related capital assets are amortized. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Revenue from the Provincial Insurance Plan, preferred accommodation, and marketed services is recognized when the goods are sold or the service is provided. b) Contributed services: A substantial number of volunteers contribute a significant amount of their time each year. Because of the difficulty in determining the fair value, contributed services are not recognized in the financial statements. c) Inventory: Inventory is valued at the lower of cost and net realizable value. Cost is determined on an average cost basis.
Notes to the Financial Statements 9 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) d) Use of estimates: The preparation of financial statements in conformity with Canadian Public Sector Accounting Standards for government not-for-profit organizations requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Areas of key estimation include determination of fair value for long term investments, allowance for doubtful accounts, and actuarial estimation of employee future benefits. e) Capital assets: Purchased capital assets are recorded at cost. Contributed capital assets are recorded at fair value at the date of contribution. Repairs and maintenance costs are charged to expense. Betterments which extend the estimated life of an asset are capitalized. When capital assets are disposed of, the cost of the asset and the resulting gain or loss on disposal, if significant, is included in net assets. Costs of construction in progress are capitalized. Amortization is not recognized until construction is complete and the assets are ready for productive use. Capital assets are amortized on a straight-line basis using the following annual rates: Buildings 2.5% Equipment 12.5% Land improvements 12.5% Assets acquired during the year are not amortized until the following year. f) Vacation pay: Vacation pay for all employees is accrued as entitlement is earned. g) Employee future benefits: The Hospital accrues its obligations under employee future benefits and the related costs. These costs include extended health and dental insurance to certain employee groups. The costs of retirement benefits earned by employees is actuarially determined using management's best estimate of salary escalation, retirement ages of employees and expected health care costs. Adjustments to these costs arising from changes in estimates and experience gains and losses are amortized to income over the estimated average remaining service life of the employee groups on a straight-line basis. The costs of multi-employer defined contribution pension plan benefits, such as the Healthcare of Ontario Pension Plan (HOOPP), are the employer's contributions due to the plan in the period. h) Financial instruments: The Hospital classifies its financial instruments as either fair value or amortized cost. The Hospital's accounting policy for each category is as follows: Fair value: This category includes equity instruments quoted in an active market. They are initially recognized at cost and subsequently carried at fair value. Unrealized changes in fair value are recognized in the statement of accumulated remeasurement gains until they are realized, when they are transferred to the statement of operations.
Notes to the Financial Statements 10 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Transaction costs related to the financial instruments in the fair value category are expensed as incurred. Where a decline in fair value is determined to be other than temporary, the amount of the loss is removed from accumulated remeasurement gains and recognized in the statement of operations. On sale, the amount held in accumulated remeasurement gains associated with that instrument is removed from net assets and recognized in the statement of operations. Amortized cost: This category includes accounts receivable, loans receivable and accounts payable and accrued liabilities. They are initially recognized at cost and subsequently carried at amortized cost using effective interest rate method, less any impairment losses on financial assets. Transaction costs related to financial instruments in the amortized cost category are added to the carrying value of the instrument. Write-downs on the financial assets in the amortized cost category are recognized when the amount of a loss is known with sufficient precision, and there is no realistic prospect of recovery. Financial assets are then written down to net recoverable value with the write-down being recognized in the statement of operations. i) Cash and cash equivalents: Cash and cash equivalents are comprised of cash on hand and in bank and short term investments or investments quoted on an active market. 3. FINANCIAL INSTRUMENT RISK MANAGEMENT Credit risk: Credit risk is the risk that financial loss to the Hospital if a debtor fails to make payments of interest and principal when due. The Hospital is exposed to this risk relating to its accounts receivable and loans receivable. Accounts receivable is mainly composed of amounts from the Provincial Ministry of Health and patient services. Allowance for doubtful accounts is set up based on the Hospital's historical experience regarding collecting. There have been no significant changes from the previous year in the exposure to risk or policies, procedures and methods used to measure the risk. Market risk: The Hospital's investment policy operates within the constraints of the investment guidelines set out by the Board of Directors. Investment portfolios are reviewed for performance on a monthly basis and monitored by management on a monthly basis. There have been no significant changes from the previous year in the exposure to risk or policies, procedures and methods used to measure the risk.
Notes to the Financial Statements 11 3. FINANCIAL INSTRUMENT RISK MANAGEMENT (Continued) Currency risk: Currency risk relates to the Hospital operating in different currencies and converting non-canadian earnings at different points in time. The Hospital does not have any material transactions or financial instruments denominated in foreign currencies. There have been no significant changes from the previous year in the exposure to risk or policies, procedures and methods used to measure the risk. Interest rate risk: Interest rate risk is the potential for financial loss caused by fluctuation in fair value or future cash flows of financial instruments because of changes in market interest rates. The Hospital is exposed to this risk through its interest bearing investments. The Hospital's bond portfolio has interest rates ranging from 1.66% to 4.25% with maturities ranging from June 2018 to August 2020. There have been no significant changes from the previous year in the exposure to risk or policies, procedures and methods used to measure the risk. Equity risk: Equity risk is the uncertainty associated with the valuation of assets arising from changes in equity markets. The Hospital is exposed to this risk through its equity holdings within its investment portfolio. There have been no significant changes from the previous year in the exposure to risk or policies, procedures and methods used to measure the risk. Liquidity risk: Liquidity risk is the risk that the Hospital will not be able to meet all cash outflow obligations as they come due. The Hospital mitigates this risk by monitoring cash activities and expected outflows through extensive budgeting and maintaining investments that may be converted to cash in the near term if unexpected cash outflows arise. There have been no significant changes from the previous year in the exposure to risk or policies, procedures and methods used to measure the risk.
Notes to the Financial Statements 12 4. FINANCIAL INSTRUMENT CLASSIFICATION The following table provides cost and fair value information of financial instruments reported on the Statement of Financial Position of the Hospital. The maximum exposure to credit risk would be the carrying value as shown below. 2018 Fair Value Amortized Cost Total Cash and investments $ 11,077,220 $ 11,077,220 Accounts receivable $ 5,628,642 5,628,642 Loans receivable 841,668 841,668 Accounts payable and accrued liabilities 8,340,456 8,340,456 Investments consist of equity instruments in Canadian and United States public companies and various government bonds. The fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities using the last bid price. 5. ACCOUNTS RECEIVABLE 2018 2017 Accounts receivable is comprised as follows: Services to patients $ 1,137,687 $ 914,253 Other 4,505,255 1,995,597 $ 5,642,942 $ 2,909,850 Less allowance for doubtful accounts 14,300 14,300 $ 5,628,642 $ 2,895,550 6. CAPITAL ASSETS Cost 2018 2017 Accumulated Amortization Net Book Value Net Book Value Land $ 78,649 $ 78,649 $ 78,649 Land improvements 1,892,056 $ 316,977 1,575,079 1,379,535 Buildings 38,250,332 11,875,421 26,374,911 27,041,791 Equipment 34,083,263 22,680,826 11,402,437 10,178,483 Construction in progress 2,848,052 2,848,052 310,332 7. COMMITMENTS AND CONTINGENCIES $ 77,152,352 $ 34,873,224 $ 42,279,128 $ 38,988,790 a) The nature of the Hospital's activities is such that there is usually litigation pending or in prospect at any time. With respect to claims at 31 March 2018, management believes the Hospital has valid defenses and appropriate insurance coverages in place. In the event any claims are successful, management believes that such claims are not expected to have a material effect on the Hospital's financial position.
Notes to the Financial Statements 13 7. COMMITMENTS AND CONTINGENCIES (Continued) b) On 1 July 1987, a group of health care organizations, ("subscribers"), formed Healthcare Insurance Reciprocal of Canada ("HIROC"). HIROC is registered as a reciprocal pursuant to Provincial Insurance Acts, which permits persons to exchange with other persons reciprocal contracts of indemnity insurance. HIROC facilitates the provision of liability insurance coverage to health care organizations in the Provinces of Ontario, Manitoba, Saskatchewan and Newfoundland. Subscribers pay annual premiums, which are actuarially determined, and are subject to assessment for losses in excess of such premiums, if any, experienced by the group of subscribers for the years in which they were a subscriber. No such assessments have been made to 31 March 2018. Since its inception in 1987, HIROC has accumulated an unappropriated surplus, which is the total of premiums paid by all subscribers plus investment income less the obligation for claims reserves and expenses and operating expenses. Each subscriber which has an excess of premiums plus investment income over the obligation for their allocation of claims reserves and expenses and operating expenses may be entitled to receive distributions of their share of the unappropriated surplus at the time such distributions are declared by the Board of Directors of HIROC. There are no distributions receivable from HIROC as of 31 March 2018. 8. INVESTMENTS 2018 2017 Investments consist of: Cash $ 616,207 $ 34,411 Fixed income 3,182,865 3,914,965 Common shares 1,579,550 1,586,849 Mutual funds and other 1,689,558 1,479,351 $ 7,068,180 $ 7,015,576 The investments are managed by investment managers who are under the direction of the Board of Directors. Market value is determined by reference to public markets as reported by the investment manager. 9. DEFERRED CAPITAL GRANTS 2018 2017 Balance at the beginning of the year $ 20,967,504 $ 19,708,607 Contributions during the year (net) 6,240,726 2,208,137 Less amortization to revenue during the year (1,414,173) (949,240) Balance at the end of the year $ 25,794,057 $ 20,967,504 10. PENSION PLAN Substantially all of the employees of the Hospital are members of the Hospitals of Ontario Pension Plan, (the "Plan") which is a multi-employer defined benefit pension plan available to all eligible employees of the participating members of the Ontario Hospital Association. Plan members will receive benefits based on the length of service and on the average annualized earnings during the five consecutive years prior to retirement, termination or death, that provide the highest earnings. Pension assets consist of investment grade securities. Market and credit risk on these securities are managed by the Plan by placing plan assets in trust and through the Plan investment policy.
Notes to the Financial Statements 14 10. PENSION PLAN (Continued) Pension expense is based on management's best estimate, in consultation with its actuaries, of the amount, together with employee contributions, required to provide a high level of assurance that benefits will be fully represented by fund assets at retirement, as provided by the Plan. The funding objective is for employer contributions to the Plan to remain a constant percentage of employee contributions. Variances between actuarial funding estimates and actual experiences may be material and any differences are generally to be funded by the participating members. Contributions made during the year by the Hospital, amounted to $ 1,595,693 (2017 - $ 1,614,487) and are included in salaries, wages and benefits in the statement of operations. 11. EMPLOYEE FUTURE BENEFITS The Hospital provides extended health and dental to certain employees. An independent actuarial study of the post-retirement and post-employment benefits has been undertaken. The most recent valuation of employee future benefits was completed as at 31 March 2018. The significant actuarial assumptions adopted in estimating the Hospital's accrued benefit obligation are as follows: Discount rate for calculation of net benefit costs of 3.76%. Discount rate to determine accrued benefit obligation for disclosure at end of period 3.37%. Dental and extended health costs in 2017 are based on the following assumed rates. Dental cost increases are assumed to be 2.75% per annum thereafter. Extended health care costs are assumed to be 6.00% in 2018 decreasing by 0.25% per annum to an ultimate rate of 4.50% per annum. Information with respect to the Hospital's employee future benefit obligations is as follows: Employee future benefit liabilities: 2018 2017 Accrued benefit obligation $ 1,171,600 $ 1,129,300 Unamortized actuarial gain 296,807 366,407 Accrued employee benefit obligation $ 1,468,407 $ 1,495,707 Employee future benefit expense: 2018 2017 Current year benefit cost $ 56,900 $ 54,800 Interest on accrued benefit obligation 42,900 42,300 Amortized actuarial (gain) loss (37,700) (37,700) Employee future benefit expense $ 62,100 $ 59,400
Notes to the Financial Statements 15 12. RELATED ENTITIES Foundation: The Foundation is a separate legal entity and reports to its own Board. Incorporated without share capital under the laws of Ontario, it is a registered charity under the Income Tax Act and was established in 1988 to raise funds for the use of the Hospital. Included in accounts receivable is an amount of $ 41,567 (2017 - $ 93,837) due from the Foundation. This represents the net of salaries, employee benefits and supplies paid by the Hospital on behalf of the Foundation during the fiscal year. Eastern Ontario Regional Laboratory Association Inc.: The Hospital is an owner/member of Eastern Ontario Regional Laboratory Association Inc. ("EORLA"). EORLA was established to provide an integration of laboratory and pathology services to the 16 member Hospitals on a cost of service basis. Effective 1 April 2012, a number of non-medical laboratory employees became employees of EORLA. The current contract is for 10 years, with a no escape clause for the first 5 years. EORLA has assumed all liabilities related to lab and pathology services and charge all member Hospitals on a semi-monthly basis for their share of lab costs based on useage. Included in other supplies and expenses is an amount of $ 1,523,368 (2017 - $ 1,437,569) for the provision of laboratory and pathology services paid to EORLA. As an owner, the Hospital would be responsible for a portion of any operating losses, liabilities or significant capital requirements agreed to by the EORLA Board of Directors. 13. INVESTMENT IN CAPITAL ASSETS 2018 2017 a) Investment in capital assets is comprised as follows: Capital assets $ 42,279,128 $ 38,988,790 Cash and investments 6,728,333 6,614,666 Less amounts financed by deferred contributions (25,794,057) (20,967,502) $ 23,213,404 $ 24,635,954 b) Net transfer between investment in capital assets and unrestricted is calculated as follows: 2018 2017 Amortization of deferred capital grants related to capital assets $ 639,418 $ 417,786 Purchase of capital assets 6,139,751 2,733,382 Amortization of capital assets (1,864,934) (2,154,680) Rental income (12,954) (11,968) Other supplies and expenses (2,992) (5,248) Amounts funded by deferred capital grants (6,240,728) (2,208,137) Transfer from investments (402,320) $ (1,342,439) $ (1,631,185)
Notes to the Financial Statements 16 14. LOANS RECEIVABLE The Hospital has provided financing to new physicians and certain employees. The loans are over a six year period with annual repayment amounts, they are non-interest bearing and will be paid back prior to 31 December 2020. 15. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current year's financial statement presentation. 16. HOSPITAL INFORMATION SYSTEM In fiscal 2018, the Hospital entered into an agreement with a group of Hospitals to implement a shared Hospital Information System. The Hospital's estimated implementation cost of the project is $ 6,300,000. The system is scheduled to go live June 2019. The other Hospitals included in the project are the Ottawa Hospital, the University of Ottawa Heart Institute, Hawkesbury & District General Hospital and St. Francis Memorial Hospital. In fiscal 2018, the Hospital made cash contributions of $ 288,852 to the Ottawa Hospital that was applied to project costs.